Question 1

Use the table for the question(s) below.
  
-If the interest rate is 10%,then which investment(s),if any,would you take and why?

Accepted Answer

NPVA = -150 + 40 / (1.10)¹ + 80 / (1.10)

Question 2

You are considering investing in a zero-coupon bond that will pay you its face value of $1000 in ten years.If the bond is currently selling for $485.20,then the internal rate of return (IRR)for investing in this bond is closest to:

Accepted Answer

A)  12% 
B)  8.0% 
C)  7.5% 
D)  10% 
E)  9% 
A)  12% 
B)  8.0% 
C)  7.5% 
D)  10% 
E)  9%

Question 3

An investor can invest $1000 at the start of a certain year,then $1000 the end of that year and the next year in a certain business.The business guarantees that the investor will receive a payment at the end of the year in five years.What is the future value (FV)of that payment if the investor is to break even,given that the discount rate over those five years is 6% per year?

Accepted Answer

A)  $2002 
B)  $2681 
C)  $3000 
D)  $3792 
E)  $3370 
A)  $2002 
B)  $2681 
C)  $3000 
D)  $3792 
E)  $3370

Question 4

A perpetuity with a first payment of $500 grows at a constant rate of 5%.If the interest rate is 7%,what is the Present Value of this perpetuity?

Accepted Answer

A)  $10,000 
B)  $25,000 
C)  $7,142.86 
D)  $4,166.67 
E)  $50,000 
A)  $10,000 
B)  $25,000 
C)  $7,142.86 
D)  $4,166.67 
E)  $50,000

Question 5

Use the information for the question(s) below.
Joe just inherited the family business, and having no desire to run the family business, he has decided to sell it to an entrepreneur. In exchange for the family business, Joe has been offered an immediate payment of $100,000. Joe will also receive payments of $50,000 in one year, $50,000 in two years, and $75,000 in three years. The current market rate of interest for Joe is 6%.
-If a few intermediate cash flows in valuing a stream of cash flows are zero,can we delete those points on the timeline and squeeze the timeline to show only nonzero cash flows?

Accepted Answer

Every cash flow contains two pieces of i

Question 6

Consider the following timeline detailing a stream of cash flows:  
If the current market rate of interest is 8%,then the future value (FV)of this stream of cash flows is closest to:

Accepted Answer

A)  $11,699 
B)  $10,832 
C)  $12,635 
D)  $10,339 
E)  $13,605 
A)  $11,699 
B)  $10,832 
C)  $12,635 
D)  $10,339 
E)  $13,605

Question 7

Dan buys a property for $250,000.He is offered a 20-year loan by the bank,at an interest rate of 6% per year.What is the annual loan payment Dan must make?

Accepted Answer

A)  $21,796.14 
B)  $24,864.98 
C)  $32,684.66 
D)  $64,486.34 
E)  $13,250.00 
A)  $21,796.14 
B)  $24,864.98 
C)  $32,684.66 
D)  $64,486.34 
E)  $13,250.00

Question 8

Anya finally decides that she will give her cousin,Zen,the loan he requested. He is expected to pay Anya $12,500 each year for the next 5 years,starting at the end of this year.The loan interest rate at the bank is 5% but because he is family,she will only charge him half of this interest rate.What is the current value of this loan,today?

Accepted Answer

A)  $58,072.86 
B)  $500,000 
C)  $62,500 
D)  $54,118.46 
E)  $55,240.89 
A)  $58,072.86 
B)  $500,000 
C)  $62,500 
D)  $54,118.46 
E)  $55,240.89

Question 9

A homeowner in a sunny climate has the opportunity to install a solar water heater in his home for a cost of $2400.After installation the solar water heater will produce a small amount of hot water every day,forever,and will require no maintenance.How much must the homeowner save on water heating costs every year if this is to be a sound investment? (The interest rate is 9% per year.)

Accepted Answer

A)  $216 
B)  $240 
C)  $248 
D)  $262 
E)  $220 
A)  $216 
B)  $240 
C)  $248 
D)  $262 
E)  $220

Question 10

Given that the interest rate is 10% per annum,what is the present value of an investment that has 5 equal payments of $50,000 each year for 5 years,starting today?

Accepted Answer

A)  $250,000 
B)  $25,000 
C)  $208,493.27 
D)  $158,493.27 
E)  $ 178,493.27 
A)  $250,000 
B)  $25,000 
C)  $208,493.27 
D)  $158,493.27 
E)  $ 178,493.27

Question 11

Use the information for the question(s) below.
Assume that you are 30 years old today, and that you are planning on retirement at age 65. Your current salary is $45,000 and you expect your salary to increase at a rate of 5% per year as long as you work. To save for your retirement, you plan on making annual contributions to a retirement account. Your first contribution will be made on your 31st birthday and will be 8% of this year's salary. Likewise, you expect to deposit 8% of your salary each year until you reach age 65. Assume that the rate of interest is 7%.
-The present value (PV)(at age 30)of your retirement savings is closest to:

Accepted Answer

A)  $87,003 
B)  $108,000 
C)  $46,600 
D)  $75,230 
E)  $88,741 
A)  $87,003 
B)  $108,000 
C)  $46,600 
D)  $75,230 
E)  $88,741

Question 12

You are saving money to buy a car.If you save $300 per month starting one month from now at an interest rate of 4%,how much will you be able to spend on the car after saving for 4 years?

Accepted Answer

A)  $41,778.96 
B)  $15,287.27 
C)  $15,587.88 
D)  $13,286.65 
E)  $15,939.84 
A)  $41,778.96 
B)  $15,287.27 
C)  $15,587.88 
D)  $13,286.65 
E)  $15,939.84

Question 13

Can we apply the growth perpetuity equation for negative growth as well?

Accepted Answer

Yes,it is perfectly in order to apply th

Question 14

What is the interest rate if the NPV= $0?

Accepted Answer

A)  14.3% 
B)  11% 
C)  10% 
D)  8% 
E)  3% 
A)  14.3% 
B)  11% 
C)  10% 
D)  8% 
E)  3%

Question 15

If the current rate of interest is 8%,then the present value (PV)of an investment that pays $1000 per year and lasts 20 years is closest to:

Accepted Answer

A)  $18,519 
B)  $45,761 
C)  $9818 
D)  $20,000 
E)  $10,016 
A)  $18,519 
B)  $45,761 
C)  $9818 
D)  $20,000 
E)  $10,016

Question 16

You have been offered the following investment opportunity: if you pay $2500 today,you will receive $1000 at the end of each of the next three years.Assuming that you could otherwise earn 10% per year on your money,the net present value (NPV)for this opportunity is closest to:

Accepted Answer

A)  $12 
B)  $18 
C)  -$13 
D)  $500 
E)  -$18 
A)  $12 
B)  $18 
C)  -$13 
D)  $500 
E)  -$18

Question 17

Use the information for the question(s) below.
Joe just inherited the family business, and having no desire to run the family business, he has decided to sell it to an entrepreneur. In exchange for the family business, Joe has been offered an immediate payment of $100,000. Joe will also receive payments of $50,000 in one year, $50,000 in two years, and $75,000 in three years. The current market rate of interest for Joe is 6%.
-In terms of present value (PV),how much will Joe receive for selling the family business?

Accepted Answer

PV = $100,000 + $50,

Question 18

A perpetuity will pay $1000 per year,starting five years after the perpetuity is purchased.What is the future value (FV)of this perpetuity,given that the interest rate is 4%?

Accepted Answer

A)  $1410 
B)  $20,582 
C)  $21,370 
D)  $25,000 
E)  There is no solution to this problem. 
A)  $1410 
B)  $20,582 
C)  $21,370 
D)  $25,000 
E)  There is no solution to this problem.

Question 19

Since your first birthday,your grandparents have been depositing $100 into a savings account every month.The account pays 4% interest annually.Immediately after your grandparents make the deposit on your 18th birthday,the amount of money in your savings account will be closest to:

Accepted Answer

A)  $11,941,266 
B)  $31,559 
C)  $30,774 
D)  $21,600 
E)  $31,764 
A)  $11,941,266 
B)  $31,559 
C)  $30,774 
D)  $21,600 
E)  $31,764

Question 20

Suppose the current interest rate is 8.5%,what is the future value of a $15 million investment in 10 years?

Accepted Answer

A)  $16.275 million 
B)  $33.915 million 
C)  $17.858 million 
D)  $150 million 
E)  $15 million 
A)  $16.275 million 
B)  $33.915 million 
C)  $17.858 million 
D)  $150 million 
E)  $15 million

Use the table for the question(s) below. -If the interest rate is 10%,then which investment(s),if any,would you take and why?

You are considering investing in a zero-coupon bond that will pay you its face value of $1000 in ten years.If the bond is currently selling for $485.20,then the internal rate of return (IRR)for investing in this bond is closest to:

A perpetuity with a first payment of $500 grows at a constant rate of 5%.If the interest rate is 7%,what is the Present Value of this perpetuity?

Consider the following timeline detailing a stream of cash flows: If the current market rate of interest is 8%,then the future value (FV)of this stream of cash flows is closest to:

Dan buys a property for $250,000.He is offered a 20-year loan by the bank,at an interest rate of 6% per year.What is the annual loan payment Dan must make?

Given that the interest rate is 10% per annum,what is the present value of an investment that has 5 equal payments of $50,000 each year for 5 years,starting today?

You are saving money to buy a car.If you save $300 per month starting one month from now at an interest rate of 4%,how much will you be able to spend on the car after saving for 4 years?

Can we apply the growth perpetuity equation for negative growth as well?

What is the interest rate if the NPV= $0?

If the current rate of interest is 8%,then the present value (PV)of an investment that pays $1000 per year and lasts 20 years is closest to:

You have been offered the following investment opportunity: if you pay $2500 today,you will receive $1000 at the end of each of the next three years.Assuming that you could otherwise earn 10% per year on your money,the net present value (NPV)for this opportunity is closest to:

A perpetuity will pay $1000 per year,starting five years after the perpetuity is purchased.What is the future value (FV)of this perpetuity,given that the interest rate is 4%?

Since your first birthday,your grandparents have been depositing $100 into a savings account every month.The account pays 4% interest annually.Immediately after your grandparents make the deposit on your 18th birthday,the amount of money in your savings account will be closest to:

Suppose the current interest rate is 8.5%,what is the future value of a $15 million investment in 10 years?

Corporate Finance and the Financial Manager

Introduction to Financial Statement Analysis

The Valuation Principle: the Foundation of Financial Decision Making

Interest Rates

Bonds

Valuing Stocks

Investment Decision Rules

Fundamentals of Capital Budgeting

Risk and Return in Capital Markets

Systematic Risk and the Equity Risk Premium

Determining the Cost of Capital

Risk and the Pricing of Options

Raising Equity Capital

Debt Financing

Capital Structure

Payout Policy

Financial Modelling and Pro Forma Analysis

Working Capital Management

Short Term Financial Planning

Risk Management

International Corporate Finance

Leasing

Mergers and Acquisitions

Corporate Governance

Filters

Exam 4: The Time Value of Money

Use the table for the question(s) below. -If the interest rate is 10%,then which investment(s),if any,would you take and why?

You are considering investing in a zero-coupon bond that will pay you its face value of $1000 in ten years.If the bond is currently selling for $485.20,then the internal rate of return (IRR)for investing in this bond is closest to:

A perpetuity with a first payment of $500 grows at a constant rate of 5%.If the interest rate is 7%,what is the Present Value of this perpetuity?

Consider the following timeline detailing a stream of cash flows: If the current market rate of interest is 8%,then the future value (FV)of this stream of cash flows is closest to:

Dan buys a property for $250,000.He is offered a 20-year loan by the bank,at an interest rate of 6% per year.What is the annual loan payment Dan must make?

Given that the interest rate is 10% per annum,what is the present value of an investment that has 5 equal payments of $50,000 each year for 5 years,starting today?

You are saving money to buy a car.If you save $300 per month starting one month from now at an interest rate of 4%,how much will you be able to spend on the car after saving for 4 years?

Can we apply the growth perpetuity equation for negative growth as well?

What is the interest rate if the NPV= $0?

If the current rate of interest is 8%,then the present value (PV)of an investment that pays $1000 per year and lasts 20 years is closest to:

You have been offered the following investment opportunity: if you pay $2500 today,you will receive $1000 at the end of each of the next three years.Assuming that you could otherwise earn 10% per year on your money,the net present value (NPV)for this opportunity is closest to:

A perpetuity will pay $1000 per year,starting five years after the perpetuity is purchased.What is the future value (FV)of this perpetuity,given that the interest rate is 4%?

Since your first birthday,your grandparents have been depositing $100 into a savings account every month.The account pays 4% interest annually.Immediately after your grandparents make the deposit on your 18th birthday,the amount of money in your savings account will be closest to:

Suppose the current interest rate is 8.5%,what is the future value of a $15 million investment in 10 years?

Corporate Finance and the Financial Manager

Introduction to Financial Statement Analysis

The Valuation Principle: the Foundation of Financial Decision Making

Interest Rates

Bonds

Valuing Stocks

Investment Decision Rules

Fundamentals of Capital Budgeting

Risk and Return in Capital Markets

Systematic Risk and the Equity Risk Premium

Determining the Cost of Capital

Risk and the Pricing of Options

Raising Equity Capital

Debt Financing

Capital Structure

Payout Policy

Financial Modelling and Pro Forma Analysis

Working Capital Management

Short Term Financial Planning

Risk Management

International Corporate Finance

Leasing

Mergers and Acquisitions

Corporate Governance

Filters